Investors have a tough time of it at the moment. Interest rates are in the toilet, there are few places offering strong returns, and alternative investments are looking shakier than ever.
Bitcoin’s insane volatility continues. A 10-day June bull run that saw the price of the world’s largest cryptocurrency skyrocket from $8,956 (£7,187) to $13,542 (£10,586) has now run out of steam.
There are no annual or earnings reports to cling to in cryptocurrency, so sentiment can turn on a sixpence. Recent downward pressure saw the coin dip under the psychologically important $10,000 level and it’s now languishing in the low $9,000s.
By the time you read this, Bitcoin could be riding high at $20,000 or crushing dreams at $1,000. That’s the problem.
When you’re value-investing for the long term, steady is better than spectacular. Head-turning investments that appear to blow your socks off could in fact blow up your entire portfolio.
If you’re brave (or crazy) enough to buy Kier right now, you could be looking at 47% yields. But for how long?
A little warning: stocks with dividend yields higher than 10% are waving a giant red flag for trouble down the road. Instead, focus your attention on trusted dividend stocks that provide reliable returns.
Legal and General Group (LSE: LGEN) takes pride of place in my portfolio. This index fund operator paid a 7.1% dividend in 2018, and pre-tax profits are up every year for the last five years.
Selling its insurance arm to German life insurer Allianz for £242m in May turned a few heads, but consider this: operating profit was zero. Nil. Nada. That strikes me as a business with a solid grasp of the fundamentals.
The stock price is cheaper than it has been for a while, so I believe if you want a good buy, now’s the time to strike.
The second FTSE 100 dividend stock that creates those incremental compound gains I love so much is: 3I Group (LSE: III).
I like 3I Group for a few reasons. This £11bn market cap stock has been investing in early-stage growth private companies since the end of the Second World War and has lasted through 14 Prime Ministers, six UK recessions and the invention of the internet.
In my opinion, it’s the ultimate set-and-forget buy for your portfolio.
An average dividend yield of 3.9% over the last five years is not going to set anyone’s world on fire. However, since 2014 the stock price has almost doubled, the dividend cover hasn’t dipped under 3.5 and short sellers have steered well clear, which are all good signs.
3I chief executive Simon Borrows said while private equity returns have been strong this past year and the stock produced overall returns of 18%, “We remain cautious in this environment, which will lead us to be careful about the pricing of new investments and to deploy further capital in companies we already know well.”
Cautious is good. With Brexit and the potential for a global slowdown on the horizon, I’d put a lot of faith in being cautious.
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Tom holds positions in both Legal & General and 3I, as well as Bitcoin (sadly).The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.